Copyright

You need $70,000 in today's You need $70,000 in today's buying power 6 years from now. You can...

Question:

You need $70,000 in today's buying power 6 years from now. You can earn 2% APR in real terms on your investments. How much do you have to invest, in nominal terms (the same amount each year), starting next year for 5 years, to just meet your needs, if you expect inflation to be 4% per year?

{eq}\bigcirc {/eq} $8,018

{eq}\bigcirc {/eq} $4,245

{eq}\bigcirc {/eq} $14,788

{eq}\bigcirc {/eq} $15,539

Nominal Interest Rate:

Nominal interest rate is the rate that is arrived without considering the effect of compounding periods and inflation rate. The real interest rate is not same as nominal interest rate due to inflation effect.

Answer and Explanation: 1

Become a Study.com member to unlock this answer!

View this answer

Here,

Real interest rate (r) = 2%

Inflation Rate (i1) = 4%

Years after amount required (n1) = 6

Number of deposit (n2) = 5

Hence, Option 3 is...

See full answer below.


Learn more about this topic:

Loading...
How to Find the Value of an Annuity

from

Chapter 21 / Lesson 15
9.4K

An annuity is a type of savings account that pays back the investor in the future. Learn the formula used to calculate an annuity's value, and understand the importance of labeling specific numbers to calculate an output over time.


Related to this Question

Explore our homework questions and answers library